The Australian Financial Review has reported that Treasury Wine Estates is preparing to raise the price of some Penfolds products due to supply exceeding demand following China removing tariffs on Australian wine imports.

The newspaper has reported the price rise will come into effect on July 1, with TWE commencing wine shipments wine to China from Adelaide on Tuesday.

The AFR noted: “The Penfolds brand is still prominent in China, with the company opting to keep 120 staff in the country even after Beijing slapped 175 per cent tariffs on its Australian exports. It also sells Penfolds-branded products made in the United States in China, and has a local label – One by Penfolds – which uses grapes grown in the Ningxia region.”

The newspaper said TWE “declined to comment on the price rises – which will be on Penfolds’ Bin 389, 407, 128 and other top-tier labels – but said demand exceeded supply globally.”

TWE announced on 28 March that it would commence partnering with its customers in China to implement the detailed plan outlined as part of its FY24 interim results announcement in February, which includes:

• Re-establishing distribution for Penfolds entry-level Australian COO portfolio, including Penfold’s Max’s, Koonunga Hill and One by Penfolds;
• Re-allocating a portion of Penfolds Bin and Icon tiers from other global markets in order to progressively re-build distribution to China, while maintaining the strong momentum in those other markets where Penfolds has successfully grown in recent years;
• Re-establishing distribution for the Treasury Premium Brands Australian sourced priority portfolio in China, including Rawson’s Retreat; and
• Expanding sales and marketing resources, and brand investment, in China.

The company said: “With demand for the Penfolds Bin and Icon portfolio expected to exceed availability in the short term, TWE will also commence working with its global customer base to finalise price increases across the Bin and Icon portfolio, which are expected to be effective from early F25.

“In doing so, Penfolds will retain its standardised global pricing structure in order to ensure long-term brand health and price integrity.Prior to today’s announcement, TWE had commenced implementing its plan to expand sourcing for the Penfolds Bin and Icon portfolio through the 2024 Australian vintage, which is currently in progress. Growing conditions in premium regions have been favourable to date, contributing to expectations for a positive vintage outcome that will support an increase to future availability.

“TWE also intends to expand sourcing through future vintages in Australia, France and China in order to further grow availability for the Penfolds multi-COO Bin and Icon portfolio over time.”

TWE warned that the financial upside of re-establishment of trade with China would be minimal through the remainder of F24, with increased shipments of Penfolds entry-level Luxury tier wines to be offset by the step up in overhead costs onshore.

“Until expanded Bin and Icon availability from the 2024 Australian vintage is available for release, which is expected substantively from F27 onwards, incremental growth due to the removal of tariffs on Australian wine sold in China will be modest, driven by the increased shipments of entry level tiers into China, any incremental price increases implemented as part of Penfolds multi-year pricing roadmap, but partially offset by incremental overheads and brand
investment in China,” the company said.

TWE said it expected that China would continue to be an attractive luxury wine market and significant growth opportunity, in particular for Penfolds which remains highly regarded by consumers in the market.

“Given this, and based on early feedback from customers in China, TWE believes the medium-term potential for Penfolds is strong, and that the removal of tariffs will be a significant positive for the business,” the company said.